Productivity -- output per hour worked -- rocketed at a 9.5% annualized rate in the latest quarter, well above the 6.5% growth Wall Street had expected.

Michael Darda, chief economist at investment firm MKM Partners in Greenwich, Conn., put the report in perspective in a research note today:

"Productivity growth has exploded upward at an 8.2% average annualized pace during the last two quarters, the fastest two-quarter surge off a recession trough since 1961. Unit labor costs, typically the flip side of the productivity numbers, collapsed at nearly a 6% annualized rate during the last two quarters -- the largest two-quarter decline off a recession trough on record. Since corporate profits are directly related to productivity growth and inversely related to unit cost growth, this data is good news for earnings.

"However, the recent productivity gains are not sustainable. At some point, hours worked and payrolls will have to rise in order to meet stepped-up production schedules. As this occurs, income growth should recover, allowing households to spend more even if they are setting aside a larger fraction of their income in savings."

Darda is an unabashed bull on the idea that the economic recovery can and will become self-sustaining -- and that job growth will follow.

Although a turn in the labor market may not be apparent in Friday’s report on October employment, Darda said, "We continue to believe that net job losses will end in the next three months and that net job growth will restart within the next six months."

But Steven Ricchiuto, chief economist at Mizuho Securities in New York, says the danger is that companies have fallen into a trap of "excessive cost cutting."

From a research note Ricchiuto wrote today:

"Specifically, the corporate sector’s single-minded focus on driving up next quarter’s earnings is resulting in an unsustainable shift in the share of national income accruing to the corporate sector at the expense of households. The more companies strive to cut cost, the more workers they fire and the lower the future demand for their product.

"The more household income is squeezed the more consumers will have to save in order to complete their required balance sheet adjustment. This in turn limits top-line revenue growth at companies and makes the turn back to cost cutting to boost earnings [create] a negative feedback loop that sets the stage for a double-dip scenario."

It’s understandable that companies remain fearful of spending money, but Ricchiuto’s concern is valid: Squeezing your remaining labor force to death isn’t a recipe for long-term business success.